The banks in Spain should consider themselves lucky if their losses are "only" 260 billion euros. It's hard not to walk down a street without seeing empty houses and condo buildings and the longer that stays on the market, the longer it will take to clear out. It's not a problem that can be solved in a few years. Even a decade is probably too fast to sell off the excess.
The question now is how will Spain address its banks? Will they force reforms within the system or tell the banks to sell off their foreign holdings and re-focus on Spain? In the last decade, many of the big Spanish banks had expanded their presence around the globe by buying up local banks and setting up camp.
While foreign expansion may boost egos and help (at times) counter-balance financial problems at home, it also becomes a very different animal to manage. As we've seen ourselves within the US banking system, bigger is not better. CNBC:
Spanish banks are likely to need more money from the government to make sure they are well capitalized, Moritz Kraemer, head of European Sovereign ratings at S&P, told CNBC on Wednesday.
Late on Monday, the Institute of International Finance (IIF) warned that under a worst-case scenario, Spain's bank losses could hit 260 billion euros ($331.7 billion), with the majority of the losses stemming from commercial real estate loans.
"Clearly what some of the Spanish banks have on their balance sheets are assets which are losing in value pretty much every month which is the huge housing stock that has been built over the last decade," Kraemer said.